ShareWORLD Open University
Malawi
Primus Inter Pares
INTERNATIONAL BUSINESS
FINAL EXAMINATION CASE STUDY
JULY 2016
YEAR 4
ALL FACULTIES
The Leading Mobile Operator
SAMSUNG
This is an open-book examination and you may consult any previously prepared written material or texts during the examination
Setting Standards for Others to Follow
The Gold Standard of Education for Centuries and Generations to Come
Sharing With Others-Culturally Correct
INDEX
CONTENTS Page
Important Notes for Candidates 3
Candidates Brief 4
The Leading Mobile Operator 5
Introduction 5
Company Background: Samsung Electronics 6
Samsung’s Mobile Phone Business 8
Samsung’s Global Management 17
Industry Outlook and Key Challenges 22
Exhibit 1 28
Exhibit 2 28
Exhibit 3 29
Exhibit 4 29
Exhibit 5 30
Exhibit 6 30
Exhibit 7 31
Exhibit 8 31
Exhibit 9 32
Exhibit 10 32
Exhibit 11 33
Exhibit 12 33
Exhibit 13 33
Exhibit 1 34
Exhibit 15 34
Exhibit 16 35
Exhibit 17 35
IMPORTANT NOTES FOR CANDIDATES
The examiner(s) will be marking your scripts on the basis of questions put to you in the examination room. You are advised to pay particular attention to the mark allocation on the examination paper and budget your time accordingly.
Your role is outlined in the Candidate’s Brief and you will be required to recommend clear course of action. You are advised not to waste valuable time collecting unnecessary data. The cases are based upon real life situations and all the information you will require for the examination is contained within the case study. No useful purpose will therefore be served by contacting companies in the industry and you are strictly instructed not to do so as it may cause unnecessary confusion.
As in real life anomalies may be found in the information provided within this case study. Please simply state your assumptions, where necessary when answering questions. ShareWORLD Open University is not in a position to answer queries on case data. You are tested on your overall understanding of the case and its key issues, not on minor details. There are no catch questions or hidden agendas. Acquaint yourself thoroughly with the case study and be prepared to follow closely the instructions given to you on the examination day. To answer examination questions effectively you must adopt a REPORT format.
As part of your preparation for the examination, you need to carry out a detailed analysis of this case study. You will then need to condense your analysis into a SIX page summary (a maximum of six sides A4), no smaller than font size 11. The content of tables, models or diagrams must be in a minimum of font size 8). This summary, and how you use it to answer the questions set, will be awarded marks and should be attached to your answer booklet at the end of the examination. The copying of pre-prepared ‘group’ answers, including those written by consultants/tutors, or by any third party, is strictly forbidden and will be penalised by failure. The questions will demand analysis in the examination itself and individually composed answers are required to pass.
IMPORTANT NOTE
The following case data has been based on real-life organisation, but details have been changed to suit assessment purposes of ShareWORLD Open University and do not reflect current management practices of the industries or the views and opinions of ShareWORLD Open University.
Candidates are strictly instructed not to contact individuals or organisations mentioned in the case study or any other organisations in the industry. Copies of the case study may be obtained from ShareWORLD Open University, P.O. Box 1446, Lilongwe,Malawi or may be accessed on www.shareworld.edu.mw.
CANDIDATE’S BRIEF
You are required to analyse the Leading Mobile Operator,Samsung, having been employed as one of the Strategic Managers of Dell Computer Corporation, based on your experience in working with a number of International Business Organisations. In your new role you have been asked to prepare a report on the current state of affairs and its impact on business performance, including the implications of the Company’s Corporate/Marketing Strategy for international operations. You will be asked to present your report to the directors about the industry situation, and they will ask you further questions based on your report.
The Leading Mobile Operator.
SAMSUNG
Abstract: This paper examines Samsung Electronics successful growth strategy in the mobile phone business. It examines its early efforts at developing a competitive product in the domestic market, its globalization strategies, and some of the key challenges it faces today. The paper provide insights into how a late-comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand.
Key words: Samsung, mobile phone, strategy
I. Introduction
For Samsung Electronics, 2003 was a watershed year. It successfully positioned itself as one of the world’s best mobile phone manufacturers and its products were featured all over the media. Many were calling its mobile phones as “the best gift for Christmas” or “the Mercedes of mobile phones.”
Samsung’s achievements were particularly remarkable considering that its primary focus had previously been in semiconductors and home appliances. Indeed, when it first made the decision to enter the mobile phone business, industry observers viewed the move as foolhardy and reckless. But, much to their surprise, Samsung’s foray into the market turned out to be a great success, contributing significantly to the company’s profit growth and brand reputation.
In 2003, Samsung posted net profits of 6 trillion won ($5 billion) on annual sales of 43.6 trillion won ($37.9 billion). As of April 2004, its market capitalization stood at around 100 trillion won ($87.4 billion). It had also surpassed Sony, which had been a benchmark for Samsung, in terms of revenues and market capitalization. (Exhibit 1)
Samsung’s exports currently account for two-thirds (79%) of total sales. In addition, Samsung has built its brand around the world; in 2003, the ‘Samsung’ brand was ranked
25th in the annual BusinessWeek/Interbrand study of the world’s most valuable brands, having grown from $8.31 billion in 2002 to $10.85 billion in 2003. (Exhibit 2)
Few would deny the claim that Samsung has achieved remarkable success in the global market. As such, it could be worthwhile to take a closer look to find out which factors have contributed most to its success. In particular, we should focus our attention on the company’s emerging mobile phone business, which has achieved some of the most outstanding gains of any of Samsung’s business lines.
The objective of this study is to gain helpful insights into how a late-comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand.
II. Company Background: Samsung Electronics
Samsung Electronics was established in 1969 in order to provide an engine of future growth for the Samsung Group. Though the electronics industry seemed promising in the 1960s, none of the Korean firms had advanced technology. Samsung began by producing low-end black–and-white televisions in a joint venture with Sanyo, a Japanese electronics company. With NEC, another Japanese firm, it produced Braun tubes and kinescope tubes. After three years, it began to produce black-and-white televisions under its own name, “Samsung.” In the 1970s, it began producing other home appliances, including washing machines, refrigerators, color televisions and microwave ovens.
During the 1980s, it expanded its business lines to personal computers (1983), semiconductors, and telecommunication networks and devices (1988). For years, Samsung was regarded as a low-end product manufacturer that made cheaper alternatives to the high-end Japanese products. Its products were not considered to be very reliable, and it did not have a very strong reputation amongst consumers.
By the end of 1992, however, the company emerged as a leading semiconductor manufacturer in the DRAM (Dynamic Random Access Memory) market. It was the first case in Korea that Samsung, a domestic latecomer, successfully caught up incumbents and even became better than them in the world market. Behind their success was the management’s strong drive to develop the semiconductor business into a truly world-class business and the company’s future growth engine.
Samsung’s system of group-wide coordination and governance enabled Samsung to concentrate its resources in the semiconductor business, which required enormous investment. For technology transfer, Samsung relied on technology licensing, established an R&D center in Silicon Valley and invited Japanese engineers to Korea on weekends to instruct Korean engineers in semiconductors. To secure human resources, Samsung recruited many Korean-American engineers with semiconductors expertise, offering them attractive compensation and benefits.
Despite a major surge in its semiconductor business, Samsung was losing money in its appliance business during the mid-1990s, as it had not managed to improve the quality and image of its products. Moreover, the Asian financial crisis of late 1997 deteriorated the situation further, causing profits to drop from $194 million in 1996 to $87 million in 1997.
To cope with its difficulties, Samsung launched a bold restructuring initiative in 1997. The initiative aimed to restructure the company in accordance with “global standards.” The company laid off 16,000 employees during the first year, and it sold or spun off unprofitable business units and manufacturing facilities. It also shifted more of its resources to the LCD (Liquid Crystal Display) and mobile phone businesses in order to diversify its revenue sources, which had previously relied on the semiconductor business.
The emphasis on profitability and shareholder value was not typical of Korean
firms at that time. The company’s unyielding emphasis on quality, innovation, and globalization resulted in significant changes within the organization, and galvanized its foundation for future growth.
As the result of many years of reorganization, Samsung now has four major divisions: Digital Media Network, Digital Appliance Network, Telecommunications, and Device Solution Network. (Exhibit 3, 4) It holds market leadership in several product categories —DRAM, SRAM, TFT-LCD, CDMA mobile phone, etc. (Exhibit 5) Furthermore, the four divisions are closely connected to one another and in line with the company’s pursuit of “digital convergence,” the company’s vision of its future.
Samsung currently has 25 production/sales subsidiaries, 39 sales subsidiaries, and 22 branch offices all over the world. (Exhibit 6)
III. Samsung’s Mobile Phone Business
A Humble Decade (1984~1993)
In 1983, Samsung initiated its mobile telecommunications business, which it hoped would become the company’s future growth engine. Forty engineers, each of whom had previously worked either in the wireless telephone division or facsimile machine division, were assigned to a new unit named the “Wireless Development Team.”
The engineers had no idea what to do first. In desperation, they decided to obtain a rough picture of a Japanese-made mobile phone. Then they asked the Samsung branch in Japan to send them a Japanese car-phone. After disassembling and reassembling the sample car-phone hundreds of times, the engineers roughly understood how a mobile phone works. In 1986, Samsung was able to release its first built-in car phone, the SC-100. But the result was disastrous. The quality was so poor that many customers filed complaints, and the company ended up cutting the number of engineers in the development team from forty to ten.
Ki Tae Lee, the then-head of the Wireless Development Team and the current president of the Telecommunications division, found himself in a major quandary in deciding whether or not to continue the mobile business.
Ki Tae Lee decided to stay on track. He asked the company to buy ten Motorola mobile phones for benchmarking. It was a big expenditure for the company at the moment. Each unit cost about 2 million won, while the expected return on investment was uncertain. His engineers then went to work on analyzing them. Many of the phones were disassembled, and many were dropped or thrown away. They tested several aspects such as product design, quality, durability, and optimal environment for communications.
Finally, in 1988, Samsung developed its first mobile phone (or “hand phone” in Korea), the SH-100. It was the first hand phone to be designed and manufactured in Korea. However, customers still thought only of Motorola when they thought of mobile phones, and the quality of the Samsung phone was not good enough to break the customers’ prejudice. Although Samsung introduced new models every year, each model sold only one or two thousand units. With such disappointing sales, talks of dropping the mobile phone line arose once again.
By the early 1990s, the worldwide mobile telecom market was growing rapidly, and many new players were entering the market. In Korea, Motorola accounted for 60-70% of the market, and Samsung accounted for only 10%. However, the engineers who participated in R&D for Samsung’s mobile phones had a strong desire that they would be able to succeed in their endeavor, based on the process of trial and error that they had already been through. The decision was made to continue with the mobile phone business. However, the project leaders felt that a more deliberate strategy was needed.
A Remarkable Turnaround: “New Management” (1993~1996)
In 1993, an important event that resulted in a breakthrough for the development team occurred on a mountain one weekend. A member of the marketing team was hiking in the mountains when he saw a man calling someone with his Motorola mobile phone. He tried to make a call with his Samsung mobile phone too, but was unsuccessful. It was then that he realized that increasing connectivity would be a crucial factor. He knew it would be especially important in Korea, since more than two thirds of Korea’s land is mountainous, and the radio waves do not transmit as far in mountainous areas as in flatter areas.
It was decided that the development team would focus on improving connectivity. They found the optimal length of a mobile phone antenna and developed a method of using gold to connect the point between the antenna and the communication circuits, thus significantly reducing resistance and enabling steadier wave conductivity. They also developed the wave-searching software that was specially designed for Korea’s topography.
Another event triggered Samsung’s mobile phone business. On June 4, 1993, Kun Hee Lee, the then-chairman of the Samsung Group, presided over a meeting in Tokyo with his top executives and advisors to discuss future technology development in the company. Right after the meeting, Lee asked several Japanese advisors to have an additional private meeting. In this meeting, Fukuda Shigeo, who was a design advisor, handed over a report titled “Management and Design.” The report criticized Samsung’s problems in design practices and offered recommendations on appropriate technologies, development procedures, and design management.